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Russia/Ukraine: Does Gas Deal Signal 'Victory For Common Sense'?

Naftogaz Ukrayiny head Oleksiy Ivchenko (L) and Gazprom CEO Aleksei Miller following today's agreement in Moscow. (epa) Russia and Ukraine today said they had reached a five-year agreement that effectively settles their natural gas price dispute. Under the terms of the deal, Ukraine will buy Russian gas at a rate of $95 per 1,000 cubic meters through a company partially owned by Gazprom, Russia's natural gas monopoly.

4 January 2006 -- Details of the agreement, which retroactively came into force on 1 January 2006, were made public today in Moscow by Aleksei Miller and Oleksiy Ivchenko, the chief executives of Russia's Gazprom and Ukraine's Naftohaz Ukrayiny.

Miller announced at a joint press conference that the Russian-Ukrainian price dispute was over, saying: "I can tell you that the talks we had with Oleksiy ended late last night, at 2:30 in the morning. We reached a final agreement. I want to tell you that the talks ended successfully for Gazprom and that Gazprom is entirely satisfied with their results."

Ivchenko expressed similar satisfaction with the outcome of the negotiations, saying the deal would make relations between Gazprom and Naftohaz Ukrayiny "fully market-based."

"We are satisfied with the results of the talks which ended overnight," Ivchenko said. "We reached a mutually profitable and mutually acceptable agreement which, on the one hand, will give us the opportunity to fully meet Ukraine's [natural] gas needs and, on the other hand, will ensure the transit of Russian gas to Europe."

Complex Scheme

Addressing reporters in Kyiv, Ukraine's Prime Minister Yuriy Yekhanurov also said that the agreement should be regarded as equally profitable to both parties.

"I wouldn't want this [agreement] to be regarded as a concession either by Russia or Ukraine. These were negotiations between partners who were able to reach an agreement in this difficult situation. I think this only proves that both Gazprom and Naftohaz [Ukrayiny] understand well their responsibility to their countries."

The chair of the Russian Union of Oil and Gas Industrialists described the agreement as a 'victory of common sense.'

The deal involves a complex price scheme under which Gazprom would sell gas to a company known as RosUkrEnergo at a rate of $230 per 1,000 cubic meters.

RosUkrEnergo would then mix that gas with supplies received from Kazakhstan, Turkmenistan, and Uzbekistan and sell it to Ukraine at the price of $95 per 1,000 cubic meters.

Miller said: "As of 1 January 2006, Gazprom delivers gas to Ukrainian customers through RosUkrEnergo. We have signed a long-term, five-year contract on Russian gas supplies, under which the initial sell price is $230 per 1,000 cubic meters."

The Swiss-registered RosUkrEnergo was created in July 2004 by Russia's Gazprombank and a group of private investors with a view to ensuring steady supplies of Turkmen gas to Ukraine up until 2028.

In August of this year, Naftohaz Ukrayiny offered to buy up the RosUkrEnergo stakes that are not owned by Gazprombank. No agreement was officially reached, however.

Yekhanurov today said Naftohaz Ukrayiny and RosUkrEnergo would next month set up a joint venture that will oversee gas supplies to Ukraine for the next five years. He gave no further details.

Transit Rate Agreed

Also today, Miller and Ivchenko announced that they had concluded a deal on the transit of Russian gas to Europe.

Under the scheme, Gazprom will now pay Naftohaz Ukrayiny $1.60 per 100 kilometers and 1,000 cubic meters of gas meant for European markets. The Ukrainian company currently charges Russia $1.09 for the use of its pipeline network.

Traditionally, these transactions have been made partly in cash, partly by barter. But Ivchenko today announced they would now be made exclusively in cash, saying: "We will pay for our gas supplies in cash and Gazprom will also pay cash for the transit of Russian gas to Europe."

Miller and Ivchenko said transit fees would not be linked to the price at which Gazprom sells its production to RosUkrEnergo.

Officials Pleased

Other Russian industry officials on Wednesday expressed satisfaction with the deal.

The chair of the Russian Union of Oil and Gas Industrialists, Gennadii Shmal, described the agreement as a "victory of common sense."

The ITAR-TASS news agency quoted Shmal as saying: "I am happy to see that cool-headed Ukrainian officials have finally understood that they did not need confrontation with Russia."

A few days ago, Gazprom decreased gas deliveries to Ukraine after negotiators failed to resolve the price dispute. The move caused drastic shortfalls in Europe, which gets about one-fifth of its supplies from Russia via Ukraine.

Gazprom denied any responsibility for the sudden dropoff in Europe, accusing Ukraine of siphoning off gas for its own use.

The European Commission, and Austria, which chairs the European Union's rotating presidency, also welcomed the agreement.

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